The Senate has begun work on eliminating a pair of budget-busting, market-strangling regulations for Americans’ retirement savings accounts. As one of its final acts, President Obama’s Department of Labor (DOL) issued a pair of regulations allowing for the creation of potentially hundreds of new, government-run trust funds.
Disguised as private savings plans, these trust funds will let government stand above the laws that apply to private individuals and businesses and compel workers to pay into shadily managed trust funds that yield poor returns. Politically appointed trust fund managers will use the revenue collected from workers to paper over debt and deficits or provide handouts to special interests, without any accountability.
{mosads}The so-called safe harbor rules create a carve-out of federal law for state and local elected officials and politically appointed bureaucrats to establish retirement funds outside the laws that govern private sector savings plans.
Ostensibly, this move was meant to increase access to retirement planning tools though government-managed savings accounts. In reality, allowing states and cities to break federal law will only saddle Americans with smaller paychecks and fewer retirement choices, while giving state and local governments free reign to rack up debt and subsidize politically connected special interests under the guise of retirement investments.
This policy is akin to setting the house on fire to kill a fly, despite there being flypaper in the closet. Nearly 80 percent of the workforce has access to private retirement savings plans already, and among young workers — whom the safe harbor rules are allegedly meant to most benefit — the rate of personal saving outpaces that of older generations.
In fact, when compared to older Americans, young adults today are the most likely to save more than five percent of their incomes and begin saving 13 years earlier on average. Almost three quarters of young Americans make use of the vast and growing market of digital saving and investment tools, further demonstrating that access to savings tools is a problem free enterprise is already addressing.
In attempting to solve a misrepresented problem, the Obama safe harbor rules invite political appointees in cash-strapped states and cities to prop up their own junk bonds on the backs of workers, empowering politicians to borrow even more money, without any accountability. The great irony of the Obama retirement scheme is the economic fact that higher government debt reduces the ability of private citizens to save.
Several states, including Washington, New Jersey, Connecticut, Illinois, and Maryland have already enacted laws to create such slush funds. California boasts its plan will cover 7.5 million workers by charging three percent on each paycheck — nowhere does their glossy one pager mention that this means taking $6.75 billion (assuming average income in this group is half the state median income) out of the pockets of working Californians.
States like Arizona, Utah, Indiana, Ohio, South Carolina, and North Dakota are also considering plans. A proposal offered in Iowa includes the friendly reminder that “the trust, treasurer of state, and the state of Iowa are not liable for any loss incurred by any person as a result of participating in the trust.”
What the snake oil salesmen promoting these plans won’t tell you is when these trust funds lose money, taxpayers will be on the hook for bailing them out.
All the risk of a private plan, with half the return and twice the likelihood of getting a taxpayer-funded bailout? Sign me up.
With the election of President Donald Trump and Republicans maintaining their majorities in both the House and Senate, Congress has been exercising its previously almost-never-used authority under the Congressional Review Act (CRA) to overrule regulations from agencies issued in the waning days of the Obama Administration. Both resolutions needed to undo the safe harbor rules passed the House of Representatives with bipartisan support several weeks ago, and the Senate is just now beginning consideration of one of the necessary resolutions.
The clock is ticking and the ability for the Senate to undo one of the Obama Administration’s most egregiously counterproductive measures will soon expire. Majority Leader Mitch McConnell (R-Ky.) should be emboldened by the wide support garnered in the House for reversing the safe harbor rules and schedule a vote on both resolutions to end this nightmare before it begins.
Al Downs is a senior economic analyst at Americans for Prosperity.
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